Tuesday, December 27, 2011

Brick & Mortar Retailers' Strategic Shift Towards E-commerce

According to Gartner, US e-commerce is growing at 10% to 15% a year while revenue of traditional retail stores is growing at about half that rate. This was proven quite strongly during the 2011 holiday season as more and more consumers turned to the Internet for their research and shopping.

With that in mind, more and more brick & mortar retailers are shifting their strategy to further develop their web presence. For example, during its Q3 earnings call, Best Buy noted its online sales were up 20% during the quarter and planned to reduce its physical space as well as close stores to further concentrate on its website.

Wal-Mart, the world’s largest brick & mortar retailer, has created a new unit called @WalmartLabs which has been tasked to improve the company’s online revenues. Although it may be the largest retailer, it ranks 6th in Internet Retailer’s top Internet retailers behind Amazon.com Inc., Staples Inc., Apple Inc., Dell Inc., and Office Depot Inc.

Many brick & mortar retailers are realizing they can no longer ignore this important sales channel. As e-commerce becomes a greater part of retailers’ strategies, retailers are taking note they can no longer treat their online operations as a separate business. Wal-Mart realized this about a year and a half ago and has since incorporated it into it general business.

Logistics and IT providers will need to take note as this strategic focus continues. Changes in distribution, transportation and IT needs are occurring. Less store fronts will result in increases in distribution centers. Kohl’s, for example, experienced a 50% increase in online sales in 2010 and as a result has opened at least three e-commerce distribution centers. Transportation patterns will change as more frequent needs of transport will benefit small parcel providers such as UPS, FedEx and regional small parcel providers. Also, LTL trucking providers should benefit as well. Finally, IT providers will benefit as the need for transportation management systems, inventory management systems, and reverse logistics will be among the IT systems retailers will need to invest in to remain competitive. As retailers invest in these IT systems, they will also need strong business intelligence tools to analyze not only back-end logistics needs but also to analyze front-end logistics.